10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2009

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                      to                     

Commission file number 1-11471

Bell Industries, Inc.

(Exact name of Registrant as specified in its charter)

California	95- 2039211
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
8888 Keystone Crossing, Suite 1700,
Indianapolis, Indiana	46240
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (317) 704-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ

As of the close of business on May 14, 2009, there were 433,416 outstanding shares of the Registrant’s Common Stock.

BELL INDUSTRIES, INC.
MARCH 31, 2009 QUARTERLY REPORT ON FORM 10-Q
INDEX

	Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Statements of Operations for the three months ended March 31, 2009 and 2008 (unaudited)		3
Consolidated Condensed Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008		4
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (unaudited)		5
Notes to Consolidated Condensed Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
PART II OTHER INFORMATION
Item 1. Legal Proceedings		18
Item 1A. Risk Factors		18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information		19
Item 6. Exhibits		19
SIGNATURES		20
Exhibit 10.d
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

2

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share data)

	Three months ended
	March 31,
	2009			2008
Net revenues:
Products	$	12,501		$	15,730
Services		5,826			7,358
Total net revenues		18,327			23,088
Costs and expenses:
Cost of products sold		10,215			12,760
Cost of services provided		4,397			4,939
Selling, general and administrative expense		5,382			5,914
Interest expense, net		208			139
Total costs and expenses		20,202			23,752
Loss from continuing operations before provision for income taxes		(1,875	)		(664	)
Provision for (benefit from) income taxes		(2	)		16
Loss from continuing operations		(1,873	)		(680	)
Income from discontinued operations, net of tax		—			1,519
Net income (loss)	$	(1,873	)	$	839
Share and per share data
Basic:
Loss from continuing operations	$	(4.32	)	$	(1.57	)
Income from discontinued operations		—			3.51
Net income (loss)	$	(4.32	)	$	1.94
Weighted average common shares outstanding		433			433
Diluted:
Loss from continuing operations	$	(4.32	)	$	(1.20	)
Income from discontinued operations		—			3.00
Net income (loss)	$	(4.32	)	$	1.80
Weighted average common shares outstanding		433			574

See Accompanying Notes to Consolidated Condensed Financial Statements.

3

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

	March 31			December 31
	2009			2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	39		$	3,233
Accounts receivable, less allowance for doubtful accounts of $864 and $791, respectively		11,307			8,096
Inventories, net		8,734			8,770
Prepaid expenses and other current assets		1,919			1,819
Notes receivable		2,600			3,000
Total current assets		24,599			24,918
Fixed assets, net of accumulated depreciation of $10,986 and $11,443, respectively		1,285			1,475
Other assets		940			867
Total assets	$	26,824		$	27,260
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Floor plan payables	$	—		$	291
Revolving credit facility		1,615			—
Accounts payable		7,080			7,189
Accrued payroll		2,117			1,462
Other accrued liabilities		3,151			3,671
Total current liabilities		13,963			12,613
Convertible note		10,964			10,840
Other long-term liabilities		4,008			4,063
Total liabilities		28,935			27,516
Commitments and contingencies
Shareholders’ deficit:
Preferred stock:
Authorized — 1,000,000 shares, outstanding — none
Common stock:
Authorized — 10,000,000 shares, outstanding — 433,416 shares		35,511			35,495
Accumulated deficit		(37,622	)		(35,751	)
Total shareholders’ deficit		(2,111	)		(256	)
Total liabilities and shareholders’ deficit	$	26,824		$	27,260

See Accompanying Notes to Consolidated Condensed Financial Statements.

4

BELL INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Three months ended
	March 31
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(1,873	)	$	839
Income from discontinued operations, net of tax		—			(1,519	)
Adjustments to reconcile net income (loss) to net cash used in operating activities for continuing operations:
Depreciation, amortization and accretion expense		240			388
Non-cash interest expense		162			332
Stock-based compensation expense		12			13
Provision for losses on accounts receivable, net		67			41
Provision for losses on inventory		—			(70	)
Changes in assets and liabilities, net of acquisitions and disposals:
Accounts receivable		(3,278	)		(2,436	)
Inventories		36			652
Accounts payable		(109	)		(2,207	)
Accrued payroll		655			513
Accrued liabilities and other		(550	)		(900	)
Net cash used in operating activities for continuing operations		(4,638	)		(4,354	)
Net cash provided by (used in) operating activities for discontinued operations		(111	)		30
Net cash used in operating activities		(4,749	)		(4,324	)
Cash flows from investing activities:
Purchases of fixed assets and other		(36	)		(380	)
Proceeds from life insurance policy		—			488
Net cash provided by (used in) investing activities for continuing operations		(36	)		108
Net cash provided by investing activities for discontinued operations		400			6,628
Net cash provided by investing activities		364			6,736
Cash flows from financing activities:
Net borrowings (payments) under revolving credit facility		1,615			(1,371	)
Debt acquisition costs		(100	)		—
Net payments of floor plan payables		(291	)		(283	)
Principal payments on capital leases		(33	)		—
Net cash provided by (used in) financing activities for continuing operations		1,191			(1,654	)
Net cash used in financing activities for discontinued operations		—			(166	)
Net cash provided by (used in) financing activities		1,191			(1,820	)
Net increase (decrease) in cash and cash equivalents		(3,194	)		592
Cash and cash equivalents at beginning of period		3,233			409
Cash and cash equivalents at end of period	$	39		$	1,001

See Accompanying Notes to Consolidated Condensed Financial Statements.

5

BELL INDUSTRIES, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 — General

The accompanying consolidated condensed financial statements of Bell Industries, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X. These financial statements have not been audited by an independent registered public accounting firm, but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The accompanying consolidated condensed balance sheet as of December 31, 2008 has been derived from audited financial statements, but does not include all disclosures required by GAAP.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to guidelines of the Securities and Exchange Commission (the “SEC”). Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate for a fair presentation, but the disclosures contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Note 2 —Sale of SkyTel Division

In January 2007, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of SkyTel Corp. (“SkyTel”), an indirect subsidiary of Verizon Communications Inc. (“Verizon”), for a total purchase price of $23.0 million, plus a $7.4 million post closing adjustment paid to Verizon in April 2007 and approximately $4.2 million in deal costs.

On October 15, 2007, the Company sold its shares of stock (the “Shares”) in two corporations that held certain FCC licenses for the operation of broadband radio service channels to Sprint Nextel Corporation. The aggregate consideration for the Shares was approximately $13.5 million in cash, with approximately $943,000, plus accrued interest, deferred until April 2009 after certain indemnification obligations were met. The Company received $1,020,000 in April 2009 representing the deferred consideration plus $77,000 in accrued interest.

On February 14, 2008, the Company completed the sale of the SkyGuard and FleetHawk product lines to SkyGuard, LLC for $7.0 million in cash. On June 13, 2008, the Company completed the sale of the remainder of the SkyTel business to Velocita Wireless, LLC (“Velocita”) for total consideration of $7.5 million, consisting of $3.0 million in cash at closing, a $3.0 million secured note payable thirty days after closing and a $1.5 million unsecured note (“Velocita Unsecured Note”) payable on the one year anniversary of the closing. Subsequent to the closing, Velocita agreed to pay the Company a working capital adjustment of $1.5 million (“Working Capital Adjustment Note”) payable in installments through June 15, 2009. The proceeds have and will continue be used to pay down outstanding balances on the Company’s revolving credit facility and to provide working capital for the Company’s continuing operations. Subsequent to the end of the first quarter of 2009, the Company entered into a settlement agreement with Velocita. See Note 14.

Upon the closing of the transactions, the Company no longer has any significant involvement and no longer generates cash flows from the SkyTel operations. Therefore, the SkyTel division was reflected as discontinued operations in the Consolidated Statements of Operations and Cash Flows for the three month periods ended March 31, 2009 and 2008. Summarized financial information in the Consolidated Statements of Operations for the discontinued SkyTel operations for the three month periods ended March 31, 2009 and 2008 is as follows (in thousands):

	Three Months ended
	March 31,
	2009		2008
Net revenues	$	—	$	20,059
Income before income taxes		—		1,519
Provision for income taxes		—		—
Income from discontinued operations, net of tax	$	—	$	1,519

In presenting discontinued operations, corporate overhead expenses have not been allocated. For the three months ended March 31, 2009 and 2008, interest expense of $0 and $348,000, respectively was allocated to discontinued operations based upon the anticipated proceeds or debt balance attributable to those operations. Income taxes have been allocated to discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes (“SFAS 109”), with intraperiod tax allocation resulting in no tax provision being provided given the Company’s full valuation allowance on its deferred tax assets.

For the three months ended March 31, 2009 and 2008, approximately $0 and $1.9 million, respectively of depreciation and amortization was not expensed due to the cessation of such expense upon the SkyTel business being classified as held for sale.

6

Note 3 — Fair Value of Financial Instruments

The Company partially adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”) on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted until January 1, 2009. This statement establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 —	Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.
Level 2 —	Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.
Level 3 —	Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

In accordance with SFAS 157, the Company determines the level in the fair value hierarchy within which each fair value measurement falls, based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the Company’s financial asset (Notes Receivable) and non-financial liability (environmental liability, see Note 10) that are measured and recorded at fair value on the Company’s Consolidated Condensed Balance Sheets on a recurring basis and their level within the fair value hierarchy during the period ended March 31, 2009:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
(In thousands)	Notes Receivable			Environmental Liability
Fair Value at December 31, 2008	$	3,000		$	3,000
Total realized gains or losses		—			—
Changes in net asset or liability resulting from collections or settlements		(400	)		(200	)
Transfers in and/or out of Level 3		—			—
Fair Value at March 31, 2009	$	2,600		$	2,800

Gains or losses resulting from changes in the fair value of notes receivable are reflected in income or loss from discontinued operations, net of tax, (see Note 2). Gains and losses resulting from changes in the fair value of the liability for environmental matters are reflected in the period realized in earnings and are reported in selling, general and administrative expenses.

The carrying amounts for cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other assets, accounts payable, and other accruals approximate their fair values because of their nature and respective duration. The fair value of the revolving credit facility is equal to its carrying value due to the variable nature of its interest rate. The fair value of the convertible note is based on its book value since the note is not publicly traded and it is not practical to measure its fair value.

Note 4 — Shipping and Handling Costs

Shipping and handling costs, consisting primarily of freight paid to carriers, Company-owned delivery vehicle expenses and payroll related costs incurred in connection with storing, moving, preparing, and delivering products totaled approximately $540,000 and $850,000 during the three months ended March 31, 2009 and 2008, respectively. These costs are included within selling, general and administrative expenses in the Consolidated Condensed Statements of Operations.

7

Note 5 — Debt and Financing Obligations

The Company has the following debt and financing obligations:

Revolving Credit Facility

The Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Foothill, Inc. (“WFF”), as administrative agent, pursuant to which WFF provided the Company with a revolving line of credit with a maximum credit amount of $10 million (the “Revolving Credit Facility”). Advances under the Revolving Credit Facility (the “Advances”) will be available to the Company, subject to restrictions based on the Borrowing Base (as such term is defined in the Credit Agreement). The Advances may be used to finance ongoing working capital, capital expenditures and general corporate needs of the Company. Advances made under the Credit Agreement bear interest, in the case of base rate loans, at a rate equal to the “base rate,” which is the greater of 3.5% or the rate of interest per annum announced from time to time by WFF as its prime rate in effect at its principal office in San Francisco, California, plus a margin. In the case of LIBOR rate loans, amounts borrowed bear interest at a rate equal to the greater of 3.0% or the LIBOR Rate (as defined in the Credit Agreement) plus a margin. The Advances made under the Credit Agreement are repayable in full on March 31, 2010. The Company may prepay the Advances (unless in connection with the prepayment in full of all of the outstanding Advances) at any time without premium or penalty. If the Company prepays all of the outstanding Advances and terminates all commitments under the Credit Agreement, the Company is obligated to pay a prepayment premium as set forth in the Credit Agreement. The Credit Agreement includes certain covenants related to profitability and capital expenditures. In connection with the Credit Agreement, the Company entered into a security agreement with WFF, pursuant to which the Company granted WFF a security interest in and a lien against certain assets of the Company. As of March 31, 2009, there was $1.6 million outstanding under the Revolving Credit Facility.

On March 12, 2009, the Company entered into Amendment Number Five to Credit Agreement and Joinder Agreement with WFF (the “Fifth Amendment”). The Fifth Amendment added the Company’s newly formed subsidiary, Bell Techlogix, Inc., as a party to the Revolving Credit Facility and made immaterial conforming and updating amendments.

On March 25, 2009, the Company entered into Amendment Number Six to Credit Agreement (the “Sixth Amendment”) with WFF. The Sixth Amendment modified the block on the amount of the Revolving Credit Facility available during 2009 to amounts ranging from $3.5 million to $6.0 million, revised the expiration date of the Revolving Credit Facility to March 31, 2010, established a minimum prime rate of 3.5% and a minimum LIBOR rate of 3.0%, increased the margin on both prime rate and LIBOR rate loans to percentages ranging from 4.0% to 4.5% and revised the financial profitability and capital expenditure covenants for the year ended December 31, 2009.

Convertible Note

On January 31, 2007, the Company entered into a purchase agreement with Newcastle Partners, L.P. (“Newcastle”) pursuant to which the Company issued and sold in a private placement to Newcastle a convertible subordinated pay-in-kind promissory note (the “Convertible Note”) in the principal amount of $10 million. Through June 13, 2008, the outstanding principal balance and accrued but unpaid interest on the Convertible Note was convertible at any time by Newcastle into shares of common stock of the Company at a conversion price of $76.20 per share, subject to adjustment. The Convertible Note accrued interest at 8%, subject to adjustment in certain circumstances, which interest accreted as principal on the Convertible Note as of each quarterly interest payment date beginning March 31, 2007. The Company also had the option (subject to the consent of WFF) to pay interest on the outstanding principal balance of the Convertible Note in cash at a higher interest rate following the first anniversary if the weighted average market price of the Company’s common stock is greater than 200% of the conversion price ($152.40 per share). The Convertible Note matures on January 31, 2017. The Company had the right to prepay the Convertible Note at an amount equal to 105% of outstanding principal following the third anniversary of the issuance of the Convertible Note so long as a weighted average market price of the Company’s common stock was greater than 150% of the conversion price ($114.40 per share). In connection with the purchase of the Convertible Note, the Company and Newcastle also entered into a registration rights agreement pursuant to which Newcastle was granted demand and piggyback registration rights in respect of shares of common stock that may be issued under the Convertible Note. In March 2007, the Company granted Newcastle a second priority lien in certain assets of the Company in order to secure the obligations under the Convertible Note.

As this debt was convertible at the option of Newcastle at a beneficial conversion rate of $76.20 per share (closing market price of the Company’s common stock as of January 31, 2007 was $89.80 per share), the embedded beneficial conversion feature was recorded as a debt discount with the credit charged to shareholders’ equity, net of tax, and amortized using the effective interest method over the life of the debt in accordance with EITF No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF 00-27”.)

8

On June 13, 2008, the Company and Newcastle entered into the Second Amended and Restated Convertible Promissory Note (the “Amended Convertible Note”) with a principal amount of $11.1 million (which represented the original $10.0 million note plus payment-in-kind interest accreted as additional principal and accrued interest through June 13, 2008.) The Amended Convertible Note reflects a reduction in the conversion price from $76.20 per share down to $4.00 per share (subject to adjustment) and a reduction in the interest rate from 8% to 4% per annum. On or after January 31, 2010, the Company has the right to prepay the Amended Convertible Note at an amount equal to 105% of the outstanding principal following the third anniversary of the issuance of the Convertible Note so long as a weighted average market price of the Company’s common stock is greater than 200% of the conversion price ($8.00 per share). As a result of the amendment, the remaining balance of the beneficial conversion feature related to the original Convertible Note issued on January 31, 2007, net of income taxes, was written off resulting in a loss on extinguishment of debt of approximately $1.1 million. As the Amended Convertible Note is convertible at the option of Newcastle at a beneficial conversion rate of $4.00 per share (closing market price of the Company’s common stock as of June 13, 2008 was $4.20 per share), the embedded beneficial conversion feature was recorded as a debt discount with the credit charged to shareholders’ equity, net of tax, and amortized using the effective interest method over the life of the debt in accordance with EITF 00-27.

On March 25, 2009, the Company entered into Amendment Number One to the Amended Convertible Note (the “First Amendment to Note”). The First Amendment to Note revised the financial profitability covenants for each of the quarters during the year ended December 31, 2009.

A summary of Amended Convertible Note activity through March 31, 2009 is as follows (in thousands):

Convertible note at December 31, 2008	$	10,840
Beneficial conversion feature		(6	)
Accretion of beneficial conversion feature		17
Accrued interest		113
Convertible note at March 31, 2009	$	10,964

Total interest expense recorded on the Convertible Note and the Amended Convertible Note, including accretion of beneficial conversion feature, during the three month periods ended March 31, 2009 and 2008 was approximately $130,000 and $232,000, respectively.

Floor Plan Arrangements

The Company financed certain inventory purchases through floor plan arrangements with two finance companies through March 31, 2009. At December 31, 2008, the Company had outstanding floor plan obligations of $291,000. There were no outstanding obligations under these floor plan arrangements at March 31, 2009.

Capital Lease

During 2008, the Company entered into capital leases related to technology systems and vehicles, which were recorded as fixed assets in the Company’s Consolidated Condensed Balance Sheet. At March 31, 2009 and December 31, 2008, the leases were recorded in the Consolidated Condensed Balance Sheets at approximately $263,000, which includes the present value of interest payments.

Note 6 — Stock-Based Compensation

The Company’s 2007 Stock Option Plan (“2007 Plan”) provides for the issuance of common stock to be available for purchase by employees, consultants and by non-employee directors of the Company. Under the 2007 Plan, incentive and nonqualified stock options, stock appreciation rights and restricted stock may be granted. Options outstanding have terms of between five and ten years, vest over a period of up to four years and may be issued at a price equal to or greater than fair value of the shares on the date of grant.

The Company utilizes the Black-Scholes valuation model in determining the fair value of stock-based grants. The resulting compensation expense is recognized over the requisite service period, which is generally the option vesting term of up to four years. Stock-based compensation expense totaled $12,000 and $13,000 for the three months ended March 31, 2009 and 2008, respectively.

9

The following summarizes stock option share activity during the three months ended March 31, 2009:

						Weighted
				Weighted		Average
	Stock			average		Remaining
	option			exercise		contractual term		Aggregate
	shares			price		(in years)		intrinsic value
Outstanding at December 31, 2008		26,750		$	89.84
Granted		—			—
Exercised		—			—
Canceled or expired		(3,750	)		82.50
Outstanding at March 31, 2009		23,000		$	88.40		4.6	$	—
Exercisable at March 31, 2009		19,000		$	85.98		4.2	$	—

The following summarizes non-vested stock options as of December 31, 2008 and changes during the three months ended March 31, 2009:

				Weighted
	Stock			average
	option			grant date
	shares			fair value
Non-vested at December 31, 2008		6,450		$	21.90
Granted		—			—
Vested		(2,450	)		20.03
Canceled or expired		—			—
Non-vested at March 31, 2009		4,000		$	23.05

The aggregate intrinsic value in the table above represents the intrinsic value (the difference between the Company closing stock price on March 31, 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2009. The total intrinsic value of options exercised during the three month periods ended March 31, 2009 and 2008 was zero. The total fair value of options vesting during the three month periods ended March 31, 2009 and 2008 was approximately $49,000 and $75,000, respectively. As of March 31, 2009, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $82,000, which is expected to be recognized over a weighted average period of approximately 0.9 years. As of March 31, 2009, there were 42,500 shares of common stock available for issuance of future stock option grants under the 2007 Plan.

Under the Bell Industries Employees’ Stock Purchase Plan (the “ESPP”), 37,500 shares were authorized for issuance to Company employees. Eligible employees may purchase Company stock at 85% of market value through the ESPP at various offering times during the year. During the third quarter of 2002, the Company suspended the ESPP. At March 31, 2009, 20,973 shares were available for future issuance under the ESPP.

Note 7 — Per Share Data

Basic earnings per share data are based upon the weighted average number of common shares outstanding. Diluted earnings per share data are based upon the weighted average number of common shares outstanding plus the number of common shares potentially issuable for dilutive securities such as stock options and convertible debt. The weighted average number of common shares outstanding for the three month periods ended March 31, 2009 and 2008 is set forth in the following table (in thousands):

	Three Months ended
	March 31,
	2009			2008
Basic weighted average shares outstanding		433			433
Potentially dilutive stock options and convertible debt		2,846			141
Anti-dilutive due to net loss in period		(2,846	)		—
Diluted weighted average shares outstanding		433			574

For the three month period ended March 31, 2009 and 2008, the number of stock option shares not included in the table above, because the impact would have been anti-dilutive based on the exercise price, totaled 23,000 and 41,200, respectively. The calculation of fully diluted earnings per share includes the add back of $0 and $232,000 of interest expense related to the Convertible Note during the three month periods ended March 31, 2009 and 2008, respectively.

10

Note 8 — Income Taxes

For the three months ended March 31, 2009 and March 31, 2008, the Company had a benefit from income taxes of $2,000 and a provision for income taxes of $16,000, respectively, primarily related to state taxes. As of March 31, 2009, the Company continues to record a full valuation allowance against net deferred tax asset balances.

As of March 31, 2009 and March 31, 2008, the Company had $0 and $404,000 of unrecognized tax benefits, respectively, all of which would affect the Company’s effective tax rate if recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest related to uncertain tax positions as of March 31, 2009 and March  31, 2008 was $0 and $135,000, respectively. As of December 31, 2008, the entire liability was recognized as the matters were resolved prior to this date. This recognition affected the Company’s effective tax rate. Tax years 2004 through 2008 remain open to examination by the major taxing jurisdictions where the Company is subject to income tax.

Note 9 — Shareholders’ Deficit

The changes to shareholders’ deficit during the three months ended March 31, 2009 are as follows (in thousands):

Shareholders’ deficit at December 31, 2008	$	(256	)
Net loss		(1,873	)
Stock based compensation		12
Beneficial conversion feature, net of tax		6
Shareholders’ deficit at March 31, 2009	$	(2,111	)

Note 10 — Environmental Matters

Reserves for environmental matters primarily relate to the cost of monitoring and remediation efforts, which commenced in 1998, at the site of a former leased facility of the Company’s electronics circuit board manufacturing business (“ESD”). The ESD business was closed in the early 1990s. At March 31, 2009 and December 31, 2008, estimated future remediation and related costs for this matter totaled approximately $2.8 million and $3.0 million, respectively. At March 31, 2009, approximately $594,000 (estimated current portion) was included in accrued liabilities and $2.2 million (estimated non-current portion) was included in other long term liabilities in the Company’s Consolidated Condensed Balance Sheets.

Note 11 — Litigation

The Company is involved in certain legal proceedings, which are incidental to its current and discontinued businesses. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes that the resolution of these actions will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.

11

Note 12 — Business Segment Information

As of March 31, 2009, the Company operates two reportable business segments: Bell Techlogix, a provider of integrated technology product and service solutions and the Recreational Products Group, a wholesale distributor of aftermarket parts and accessories for recreational vehicles, boats, snowmobiles, motorcycles and ATVs. The Company also separately records expenses related to corporate overhead which supports the business lines. The Company’s former segment, SkyTel, has been reflected as a discontinued operation and, therefore, is not presented. Each operating segment offers unique products and services and has separate management.

The following summarizes financial information for the Company’s reportable segments (in thousands):

	Three months ended
	March 31,
	2009			2008
Net revenues:
Bell Techlogix
Products	$	5,154		$	5,839
Services		5,826			7,358
Total Bell Techlogix		10,980			13,197
Recreational Products Group		7,347			9,891
Total net revenues	$	18,327		$	23,088
Operating income (loss):
Bell Techlogix	$	(589	)	$	424
Recreational Products Group		(172	)		188
Corporate		(906	)		(1,137	)
Total operating loss		(1,667	)		(525	)
Interest expense, net		208			139
Loss from continuing operations before income taxes	$	(1,875	)	$	(664	)
Depreciation and amortization:
Bell Techlogix	$	165		$	308
Recreational Products Group		26			30
Corporate		49			50
	$	240		$	388
Capital expenditures:
Bell Techlogix	$	19		$	342
Recreational Products Group		8			—
Corporate		9			38
	$	36		$	380

12

	March 31,		December 31,
	2009		2008
Total assets:
Bell Techlogix	$	7,594	$	6,494
Recreational Products Group		13,443		11,184
Corporate		2,330		5,646
Discontinued operations		3,457		3,936
	$	26,824	$	27,260

Note 13 — Related Party Transactions

Newcastle is a private investment firm and one of the Company’s largest shareholders. Mr. Mark E. Schwarz, the Chairman of the Company’s Board of Directors, serves as the General Partner of Newcastle, through an entity controlled by him. Mr. Clinton J. Coleman, a Vice President of Newcastle and a member of the Company’s Board of Directors, was appointed Interim Chief Executive Officer of the Company in 2007 and continues to serve in that capacity.

Under the supervision of the Company’s Board of Directors (other than Mr. Schwarz and Mr. Coleman), members of management, with the assistance of counsel, negotiated the terms of Newcastle’s Convertible Note and Amended Convertible Note directly with representatives of Newcastle (see Note 5). After final negotiations concluded, the Company’s Board of Directors, excluding Mr. Schwarz and Mr. Coleman, approved the Newcastle transactions. Mr. Schwarz and Mr. Coleman did not participate in any of the Board of Directors’ discussions regarding the Newcastle transactions or the votes of the Board of Directors to approve the same.

Note 14 — Subsequent Event

On May 12, 2009, the Company entered into a settlement agreement with Velocita and various of Velocita’s affiliated entities, which included an agreement to reduce the amount of the $1.5 million Velocita Unsecured Note due on June 13, 2009 to $1.35 million, with $250,000 paid on May 12, 2009 and the remaining $1.1 million balance payable in eleven monthly installments of $100,000 beginning on June 1, 2009.  In exchange for the reduction in the principal amount of the Velocita Unsecured Note and the extended payment terms, the Company received corporate guarantees from the Velocita affiliated entities on the remaining outstanding balance.  In addition, the balance outstanding on the Working Capital Adjustment Note of $1.1 million was paid in full on May 12, 2009.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of financial condition and results of operations of the Company should be read in conjunction with the consolidated condensed financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. This discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, our plans, strategies and prospects, both business and financial. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward looking statements contained in this Quarterly Report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” and “estimated,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements that we make in this Quarterly Report are set forth below, are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and are set forth in other reports or documents that we file from time to time with the SEC. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law

Critical Accounting Policies

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the critical accounting policies which affect the more significant estimates and assumptions used in preparing the consolidated financial statements were identified. These policies have not changed from those previously disclosed.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. On February 12, 2008, the FASB approved FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No. 157. This FSP delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company determined that its adoption of SFAS 157 had an immaterial impact on the Company’s consolidated financial position and results of operations. See Note 3 of the Notes to Consolidated Condensed Financial Statements.

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The FSP provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The FSP also requires increased disclosures. This FSP is effective for interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company plans to adopt this FSP in the second quarter of 2009; however, the Company does not expect the adoption to have a material effect on its results of operations or financial position.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies that were previously only required in annual financial statements. This FSP is effective for interim reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009, The Company plans to adopt this FSP in the second quarter of 2009.

14

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

The Company has provided a summary of its consolidated operating results for the three months ended March 31, 2009, compared to the three months ended March 31, 2008, followed by an overview of its business segment performance below:

Net revenues

Net revenues were $18.3 million for the first quarter of 2009 as compared to $23.1 million for the first quarter of 2008, representing a decrease of $4.8 million or 20.6%. The decrease consisted of a $2.6 million decrease in net revenues in the Recreational Products Group segment and a $2.2 million decrease in net revenues in the Bell Techlogix segment.

Gross profit

Gross profit, which represents net revenues less the cost of products sold and services provided, was $3.7 million, or 20.3% of net revenues, for the first quarter of 2009, compared to $5.4 million, or 23.3% of net revenues, for the first quarter of 2008. The decrease consisted of a $1.1 million decrease in gross profit in the Bell Techlogix segment and a $0.6 million decrease in gross profit in the Recreational Products Group segment.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses were $5.4 million, or 29.4% of net revenues, for the first quarter of 2009, compared to $5.9 million, or 25.6% of net revenues, for the first quarter of 2008. The decrease in SG&A expenses of $0.5 million consisted of reductions in SG&A expenses of $0.2 million in the Corporate segment, $0.2 million in the Recreational Products Group segment and $0.1 million in the Bell Techlogix segment for the first quarter of 2009.

Interest and other, net

Net interest expense was $208,000 for the first quarter of 2009, compared to $139,000 for the first quarter of 2008. The increase in net interest expense was the result of the allocation, during the first quarter of 2008, of approximately 70% or $348,000 of the interest expense to discontinued operations. The net interest expense is primarily the result of the outstanding balances under the Revolving Credit Facility and the Amended Convertible Note.

Income taxes

The benefit for income taxes for the three months ended March 31, 2009 totaled $2,000 compared to a provision for income taxes of $16,000 for the three months ended March 31, 2008. At March 31, 2009, the Company continued to record a full valuation allowance against net deferred tax asset balances.

Discontinued operations

In late 2007, the Company entered into letters of intent with two companies to sell its SkyTel division in two separate transactions. The Company completed the sale of the SkyGuard and FleetHawk product lines in February 2008 and the sale of the remainder of the SkyTel business in June 2008. Accordingly, the results of the SkyTel business have been classified as discontinued operations in the accompanying financial statements. For the three months ended March 31, 2009 and 2008, the SkyTel division had revenues of $0 and $20.1 million and income before income taxes of $0 and $1.5 million, respectively.

Business Segment Results

The Company operates two reportable business segments: Bell Techlogix, a provider of integrated technology product and service solutions and the Recreational Products Group, a wholesale distributor of aftermarket parts and accessories for recreational vehicles, boats, snowmobiles motorcycles and ATVs. The Company also separately records expenses related to corporate overhead which supports the business lines. The Company’s former segment, SkyTel, has been reflected as a discontinued operation and, therefore, is not presented.

15

Bell Techlogix

Bell Techlogix’s revenues of $11.0 million for the first quarter of 2009 represented a 16.8% decrease from the $13.2 million of revenues for the first quarter of 2008. Product revenues of $5.2 million for the first quarter of 2009 represented an 11.7% decrease from the $5.9 million of product revenues for the first quarter of 2008 due primarily to timing of some large product deployments. Service revenues of $5.8 million for the first quarter of 2009 represented a 20.8% decrease from the $7.4 million of service revenues for the first quarter of 2008, which was primarily the result of a significant non-recurring project in the first quarter of 2008 and the expiration of certain services contracts during 2008.

Bell Techlogix’s operating loss of $0.6 million for the first quarter of 2009 represented a $1.0 million decrease from the operating income of $0.4 million for the first quarter of 2008. The decline in operating income can be attributed to the expiration of certain service contracts prior to the first quarter of 2009, a significant non-recurring services project in the first quarter of 2008, increases in sales and marketing costs in the first quarter of 2009 in an attempt to grow the commercial segment of the Bell Techlogix business and timing of product sales.

Recreational Products Group

Recreational Products Group (“RPG”) revenues of $7.3 million for the first quarter of 2009 represented a 25.7% decrease from the $9.9 million of revenues for the first quarter of 2008. This decrease was primarily related to lower sales in the recreational vehicle and marine product lines attributed primarily to lower out of season purchases by dealers. As a result of the current economic uncertainty, many dealers have made strategic changes in buying habits to stock less product and order product from distributors as they need parts for repairs or as customers place orders.

RPG operating loss of $0.2 million for the first quarter of 2009 represented a $0.4 million decrease from the operating income of $0.2 million for the first quarter of 2008. The decline can be attributed entirely to the $2.5 million decline in revenues in the first quarter of 2009 versus the same period in 2008. The decline in revenues was partially offset by an increase in gross profit margins from 24.0% in the first quarter of 2008 to 24.2% in the first quarter of 2009 and a $0.2 million decrease in SG&A expenses as a result of reductions in headcount, freight and facility costs.

Corporate

Corporate overhead costs of $0.9 million for the first quarter of 2009 represented a 20.3% decease from $1.1 million for the first quarter of 2008. The decrease in costs of $0.2 million was primarily the result of payroll cost reductions since the end of the first quarter of 2008 and the related travel and benefits costs, reductions in telecommunications expenses and the favorable settlement of a disputed obligation.

Changes in Financial Condition

Liquidity and Capital Resources

Selected financial data are set forth in the following tables (dollars in thousands, except per share amounts):

	March 31			December 31
	2009			2008
Cash and cash equivalents	$	39		$	3,233
Working capital	$	10,636		$	12,305
Current ratio		1.76			1.98
Long-term liabilities to capitalization (1)		116.4	%		101.7	%
Shareholders’ deficit per share	$	(4.88	)	$	(0.59	)
Days’ sales in receivables		54			50

(1) Capitalization represents the sum of long-term debt and stockholders’ deficit.

For the three months ended March 31, 2009, net cash used in operating activities totaled $4.7 million, consisting of $4.6 million used in operating activities for continuing operations and $0.1 million used in operating activities for discontinued operations (the Company’s former SkyTel division). The net cash used in operating activities for continuing operations was primarily the result of the loss from continuing operations of $1.9 million and an increase in accounts receivable of $3.3 million related primarily to the Recreational Products Group selling products with extended payment terms, partially offset by non-cash expenses and other changes totaling $0.6 million. Net cash provided by investing activities totaled $0.4 million, consisting of $36,000 in cash used in investing activities for continuing operations related to purchases of fixed assets and $0.4 million in cash provided by investing activities for discontinued operations related to payments received during the first quarter of 2009 related to a note receivable. Cash flows provided by financing activities totaled $1.2 million, consisting of $1.6 million in borrowings on the Revolving Credit Facility, partially offset by $0.3 million in payments of floor plan payables and $0.1 million in payments of debt acquisition costs.

16

For the three months ended March 31, 2008, net cash used in operating activities totaled $4.3 million, consisting of $4.4 million used in operating activities for continuing operations and $30,000 provided by operating activities for discontinued operations. The net cash used in operating activities for continuing operations was primarily the result of an increase in accounts receivable of $2.4 million, related primarily to the Recreational Products Group selling products with extended payment terms, and a decrease in accounts payable and accrued liabilities of $2.6 million, partially offset by a decrease in inventory of $0.7 million. Net cash provided by investing activities totaled $6.7 million, consisting of $0.1 million provided by investing activities for continuing operations related to proceeds from a life insurance policy of $0.5 million, partially offset by purchases of fixed assets, and $6.6 million provided by investing activities for discontinued operations. The $6.6 million in cash provided by investing activities for discontinued operations represented $7.0 million in proceeds from the sale of the SkyGuard and FleetHawk products lines to SkyGuard, LLC in February 2008, partially offset by $0.4 million related to deal costs. Cash flows used in financing activities totaled $1.8 million, consisting of $1.6 million used in financing activities for continuing operations, including $1.3 million to pay down the revolving line of credit and $0.3 million in payments of floor plan payables, and $0.2 million used in financing activities for discontinued operations related to payments of capital lease obligations.

Revolving Credit Facility with Wells Fargo Foothill

As of March 31, 2009, we had $1.6 million outstanding under our Revolving Credit Facility with Wells Fargo Foothill, N.A. (“WFF”). The Company anticipates utilizing the Revolving Credit Facility periodically during 2009 to fund working capital needs. The Revolving Credit Facility is secured by a lien on substantially all of the Company’s assets.

Additional advances under the Revolving Credit Facility (collectively, the “Advances”) will be available to the Company, up to the aggregate $10 million credit limit, subject to restrictions based on the borrowing base. The Advances may be used to finance ongoing working capital, capital expenditures and general corporate needs of the Company. Advances made under the Revolving Credit Facility bear interest, in the case of base rate loans, at a rate equal to the “base rate,” which is the greater of 3.5% or the rate of interest per annum announced from time to time by WFF as its prime rate, plus a margin. In the case of LIBOR rate loans, amounts borrowed bear interest at a rate equal to the greater of 3.0% or the LIBOR Rate (as defined in the Credit Agreement) plus a margin. The Advances made under the Credit Agreement are repayable in full on March 31, 2010. The Company may prepay the Advances (unless in connection with the prepayment in full of all of the outstanding Advances) at any time without premium or penalty. If the Company prepays all of the outstanding Advances and terminates all commitments, the Company is obligated to pay a prepayment premium.

On March 12, 2009, the Company entered into Amendment Number Five to Credit Agreement and Joinder Agreement with WFF. The Fifth Amendment added the Company’s newly formed subsidiary, Bell Techlogix, Inc., as a party to the Revolving Credit Facility and made immaterial conforming and updating amendments.

On March 25, 2009, the Company entered into Amendment Number Six to Credit Agreement with WFF. The Sixth Amendment modified the block on the amount of the Revolving Credit Facility available during 2009 to amounts ranging from $3.5 million to $6.0 million, revised the expiration date of the Revolving Credit Facility to March 31, 2010, established a minimum prime rate of 3.5% and a minimum LIBOR rate of 3.0%, increased the margin on both prime rate and LIBOR rate loans to percentages ranging from 4.0% to 4.5% and revised the financial profitability and capital expenditure covenants for the year ended December 31, 2009.

Convertible Note Held By Newcastle

On January 31, 2007, the Company issued to Newcastle a convertible subordinated pay-in-kind promissory note with a principal amount of $10.0 million (the “Convertible Note”) in order to complete the financing of the Company’s acquisition of SkyTel. The Convertible Note was amended and restated on June 13, 2008 (the “Amended Convertible Note”). The Amended Convertible Note is secured by a second priority lien on substantially all of the Company’s assets. The outstanding principal balance and/or accrued but unpaid interest on the Amended Convertible Note is convertible at any time by Newcastle into shares of our common stock at a conversion price of $4.00 per share (the “Conversion Price”), subject to adjustment. The Amended Convertible Note accrues interest at 4% per annum, subject to adjustment in certain circumstances, which interest accretes as principal on the Amended Convertible Note as of each quarterly interest payment date. In connection with execution of the Amended Convertible Note, and subject to certain conditions, the Company has agreed to appoint such number of director designees of Newcastle such that Newcastle’s designees constitute 50% of the then outstanding current members of the Company’s board of directors (or, if the number of members of the board of directors is an odd integer, such number of Newcastle designees equal to the lowest integer that is greater than 50% of the then outstanding members). The Company also has the option (subject to the consent of WFF) to pay interest on the outstanding principal balance of the Amended Convertible Note in cash at a higher interest rate (8%) following January 31, 2009 if the weighted average market price of the Company’s common stock is greater than 200% of the Conversion Price ($8.00 per share). The Amended Convertible Note matures on January 31, 2017. The Company has the right to prepay the Amended Convertible Note at an amount equal to 105% of outstanding principal after January 31, 2010 so long as the weighted average market price of the Company’s common stock is greater than 200% of the Conversion Price ($8.00). As of March 31, 2009, the outstanding principal balance and accrued but unpaid interest on the Amended Convertible Note was $11.5 million.

17

On March 25, 2009, we entered into Amendment Number One to the Amended Convertible Note. This amendment revised the financial profitability covenants for each of the quarters during the year ended December 31, 2009.

The Company believes that sufficient cash resources exist for the foreseeable future to support its operations and commitments through cash generated by operations, collection of the final amounts due from the sale of the SkyTel business and advances under the Revolving Credit Facility with WFF. Management continues to evaluate its options in regard to obtaining additional financing to support future growth.

Off-Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has no investments in market risk-sensitive investments for either trading purposes or purposes other than trading purposes. The Company is exposed to market risk from changes in interest rates on variable rate debt. Under the Credit Agreement with WFF, advances bear interest based on WFF’s prime rate plus a margin or at LIBOR Rate plus a margin. Based on the Company’s average outstanding variable rate debt during the quarter ended March 31, 2009, a 1% increase in the variable rate would increase annual interest expense by approximately $5,000.

Item 4. Controls and Procedures

The Company’s management, with the participation of its Interim Chief Executive Officer and its President and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2009. Based on this evaluation, the Company’s Interim Chief Executive Officer and President and Chief Financial Officer concluded that, as of March 31, 2009, the Company’s disclosure controls and procedures were effective. The Company’s disclosure controls and procedures are (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to its Interim Chief Executive Officer and President and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) intended to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in certain legal proceedings, which are incidental to its current and discontinued businesses. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes that the resolution of these actions will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the Company’s Annual Report on Form 10-K, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results. You should carefully consider the risks described in Company’s Annual Report on Form 10-K before deciding to invest in the Company’s common stock. In assessing these risks, you should also refer to the other information in this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, including the Company’s financial statements and the related notes. Various statements in this Quarterly Report on Form 10-Q constitute forward-looking statements.

18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

On May 12, 2009, the Company entered into a settlement agreement with Velocita. The information set forth in Note 14 of the Notes to Consolidated Condensed Financial Statements is incorporated herein by reference. The Settlement Agreement and Mutual Release has been filed as Exhibit 10.d. to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

10.a.	Amendment Number Five to Credit Agreement and Joinder Agreement, dated March 12, 2009, between the Registrant and Wells Fargo Foothill, Inc. (incorporated by reference to Exhibit 10.l of the Registrant’s Annual Report on Form 10-K dated December 31, 2008).
10.b.	Amendment Number Six to Credit Agreement, dated March 25, 2009, between the Registrant and Wells Fargo Foothill, Inc. (incorporated by reference to Exhibit 10.m. of the Registrant’s Annual Report on Form 10-K dated December 31, 2008).
10.c.	Amendment Number One to the Second Amended and Restated Convertible Promissory Note, dated March 25, 2009, between the Registrant and Newcastle Partners, L.P. (incorporated by reference to Exhibit 10.q. of the Registrant’s Annual Report on Form 10-K dated December 31, 2008).
10.d.	Settlement Agreement and Mutual Release, dated as of May 12, 2009, by and among Bell Industries, Inc., Bell Techlogix, Inc., Velocita Wireless LLC, United Wireless Holdings Inc., North American Wireless Holdings LLC, Skytel Spectrum LLC, ST Network Services LLC, United Spectrum Management Services LLC, ST Messaging Services LLC and Messaging Management Services LLC
31.1	Certification of Clinton J. Coleman, Interim Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Kevin J. Thimjon, President and Chief Financial Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Clinton J. Coleman, Interim Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Kevin J. Thimjon, President and Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BELL INDUSTRIES, INC.
Dated: May 15, 2009	By:	/s/ Clinton J. Coleman
		Clinton J. Coleman
		Interim Chief Executive Officer (authorized officer of registrant)
Dated: May 15, 2009	By:	/s/ Kevin J. Thimjon
		Kevin J. Thimjon
		President and Chief Financial Officer (principal financial and accounting officer)

20

EXHIBIT INDEX

Exhibit
No.		Description
	10.d.	Settlement Agreement and Mutual Release, dated as of May 12, 2009, by and among Bell Industries, Inc., Bell Techlogix, Inc., Velocita Wireless LLC, United Wireless Holdings Inc., North American Wireless Holdings LLC, Skytel Spectrum LLC, ST Network Services LLC, United Spectrum Management Services LLC, ST Messaging Services LLC and Messaging Management Services LLC
	31.1	Certification of Clinton J. Coleman, Interim Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Kevin J. Thimjon, President and Chief Financial Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Clinton J. Coleman, Interim Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Kevin J. Thimjon, President and Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

21

EX-10.4

Exhibit 10.d

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this “Agreement”) is entered into as of May 12, 2009 (the “Effective Date”), by and among BELL INDUSTRIES, INC., a California corporation (“Bell”), BELL TECHLOGIX, INC., a Delaware corporation (“Bell Techlogix”), VELOCITA WIRELESS LLC, a Delaware limited liability company (“Velocita”), UNITED WIRELESS HOLDINGS INC., a Delaware corporation (“United Wireless”), NORTH AMERICAN WIRELESS HOLDINGS LLC, a Delaware limited liability company (“NA Wireless”), SKYTEL SPECTRUM LLC, a Delaware limited liability company (“SkyTel Spectrum”), ST NETWORK SERVICES LLC, a Delaware limited liability company (“ST Network”), UNITED SPECTRUM MANAGEMENT SERVICES LLC, a Delaware limited liability company (“United Spectrum”), ST MESSAGING SERVICES LLC, a Delaware limited liability company (“ST Messaging”) and MESSAGING MANAGEMENT SERVICES LLC , a Delaware limited liability company (“Messaging Management”).

RECITALS:

A. Bell and Velocita entered into an Asset Purchase Agreement dated as of March 30, 2008, which was amended as of June 13, 2008 (the “Asset Purchase Agreement”), pursuant to which Bell agreed to sell to Velocita substantially all of the assets used by Bell in the operation of its paging systems subject to certain conditions, including certain licenses issued by the Federal Communications Commission as set forth in the Asset Purchase Agreement (the “FCC Licenses”).

B. As part of the purchase price under the Asset Purchase Agreement, Velocita executed and delivered a $1,500,000 unsecured promissory note in favor of Bell (the “Deferred Note”).

C. In furtherance of the transactions contemplated by the Asset Purchase Agreement, Bell and SkyTel Spectrum entered into a Spectrum Manager Lease Agreement dated as of June 13, 2008 (the “Spectrum Lease Agreement”), as a means of entering into a spectrum manager leasing arrangement (within the meaning of 47 C.F.R Section 1.9020) pursuant to which SkyTel Spectrum shall have the right to use all of the spectrum authorized under the FCC Licenses.

D. Bell and Velocita are parties to an Agreement, dated as of February 5, 2009, with respect to settling certain matters related to the difference between the Closing Net Current Assets and the Target Amount (the “Working Capital Adjustment”) under the Asset Purchase Agreement (the “Working Capital Settlement Agreement”). In order to satisfy the Working Capital Adjustment, Velocita executed and delivered a $1,250,000 unsecured promissory note in favor of Bell (the “Working Capital Note”). The parties acknowledge that there currently exists an event of default under the Working Capital Note caused by Velocita’s failure to make payments on the note as scheduled therein.

E. Bell Techlogix and Velocita are parties to a Paging Equipment Processing and Distribution Statement of Work No. 1 effective December 1, 2008 (the “Distribution Agreement”), pursuant to which Bell Techlogix provided certain paging equipment services to Velocita in connection with its paging business.

F. Bell and Velocita are parties to a Sublease Agreement dated as of June 13, 2008 (the “Sublease”), pursuant to which Velocita subleases certain space from Bell in Clinton, Mississippi.

G. Pursuant to an internal reorganization of Velocita’s business, certain of the SkyTel assets, and the related liabilities, purchased by Velocita pursuant to the Asset Purchase Agreement were transferred to ST Messaging and ST Network, each an affiliate of Velocita. Subsequent to this internal reorganization, all of the membership interests of ST Messaging, which were held by SkyTel Spectrum and NA Wireless, were transferred to Messaging Management, in exchange for SkyTel Spectrum and NA Wireless collectively receiving 50% of the membership interests in Messaging Management, and ST Messaging became a wholly owned subsidiary of Messaging Management (collectively, the “SkyTel Reorganization”).

H. Certain disputes have arisen among Bell and its affiliates and Velocita, ST Messaging and their respective affiliates regarding the payment of certain amounts under the Deferred Note, the Spectrum Lease Agreement, the Working Capital Settlement Agreement, the Working Capital Note, the Distribution Agreement and the Sublease.

I. The parties desire to resolve the disputes upon the terms and conditions set forth herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

1. Working Capital Adjustment. Bell hereby agrees to accept, in full satisfaction of the Working Capital Note, the amount of $1,100,000 (the “Working Capital Note Payment”). The Working Capital Note Payment shall be paid to Bell in immediately available funds by wire transfer on the Effective Date. In addition, on the Effective Date Bell shall be reimbursed $14,000 in immediately available funds by wire transfer for customer USF Fees intercepted by the government (the “USF Fee Payment”). Upon receipt of the Working Capital Note Payment, Bell shall mark the Working Capital Note “paid in full” and shall return the original note to Velocita. Bell acknowledges that upon receipt of the Working Capital Note Payment and the USF Fee Payment, all obligations under Section 3 of the Working Capital Settlement Agreement have been fully satisfied, and upon receipt of the Initial Deferred Note Payment Bell and the Current Distribution Payments agrees to take such further action as is necessary to assign the FCC Licenses to SkyTel Spectrum as soon as reasonably practicable; specifically, (a) Bell shall execute and deliver to SkyTel Spectrum on the Effective Date an Instrument of Assignment and any other documents required in connection with consummation of the assignment of the FCC Licenses to SkyTel Spectrum, and (b) Bell agrees that SkyTel Spectrum may submit, or may cause to be submitted, an FCC Form 603 notification of consummation (the “Consummation Notice”) of the assignment of the FCC Licenses to SkyTel Spectrum on or after the Effective Date, and (c) SkyTel Spectrum agrees to submit, or cause to be submitted, the Consummation Notice as soon as possible on or after the Effective Date. Notwithstanding anything to the contrary contained herein, nothing in this Agreement releases Bell from its obligation under Section 4 of the Working Capital Settlement Agreement with respect to the Tax Assessment (as defined in the Working Capital Settlement Agreement). Any downward adjustment to the Working Capital Note shall constitute a reduction of the purchase price under the Asset Purchase Agreement.

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2. Deferred Note. Bell hereby agrees to accept, in full satisfaction of the Deferred Note, the amount of $1,350,000 (the “Deferred Note Payment”). The Deferred Note Payment shall be paid to Bell as follows:

(a) an initial payment of $250,000 shall be paid to Bell in immediately available funds by wire transfer on the Effective Date (the “Initial Deferred Note Payment”); and

(b) the remaining balance of the Deferred Note Payment shall be paid in eleven equal monthly installments of $100,000 beginning on June 1, 2009 and payable on the first day of each succeeding month thereafter (or the first business day of such month if the first day of any month is not a business day). The payments under this subsection (b) shall be evidenced by a promissory note in substantially the form attached hereto as Exhibit A to be issued by NA Wireless and fully guaranteed by the Guarantors (as defined below) (the “New Deferred Note”).

Upon receipt of the New Deferred Note, Bell shall mark the Deferred Note “canceled” and shall return the original note to Velocita, provided, however, that if the Guarantors fail to cause the New Deferred Note to be properly paid as amounts become due, then the principle amount of the New Deferred Note shall increase by $150,000, which additional amount shall become immediately due and payable. Any downward adjustment to the Deferred Note shall constitute a reduction of the purchase price under the Asset Purchase Agreement.

3. Distribution Agreement. Pursuant to the SkyTel Reorganization, the Distribution Agreement was assigned to ST Messaging. In connection with the SkyTel Reorganization, ST Messaging has requested the termination of the Distribution Agreement. Bell Techlogix has agreed to terminate the Distribution Agreement in exchange for a termination fee of $300,000 and payment for actual services rendered through the termination date of the Distribution Agreement. The termination fee shall be paid to Bell Techlogix in immediately available funds in six equal monthly installments of $50,000 beginning on June 1, 2009 and payable on the first day of each succeeding month thereafter (or the first business day of such month if the first of the month is not a business day). In addition, Bell Techlogix shall receive payment for actual services rendered through the later of (i) May 31, 2009 or (ii) the date the activities performed under the Distribution Agreement are taken over by ST Messaging. Such payment shall be payable within thirty (30) days of receipt by ST Messaging of an invoice for such services. The payments currently due and payable under the Distribution Agreement for services performed from March 1, 2009 through April 30, 2009 in the amount of $65,896 (the “Current Distribution Payments”) shall be paid to Bell in immediately available funds on the Effective Date.

In connection with the termination of the Distribution Agreement and the payments made under this Section 3, Bell Techlogix agrees that it shall transfer (or shall cause to be transferred) ownership of the equipment from the Indianapolis, Indiana fulfillment center listed on Exhibit B attached hereto and made a part hereof to ST Messaging. Bell Techlogix shall ship such equipment (or cause such equipment to be shipped) to ST Messaging in Lewisville, Texas (which shipping costs shall be paid by ST Messaging) within 10 days of the date upon which Bell ceases to provide services under the Distribution Agreement.

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4. FCC Legal Fees. Pursuant to Section 13(h) of the Spectrum Lease Agreement, SkyTel Spectrum is responsible for reimbursing Bell for all reasonable out of pocket costs and expenses, including reasonable legal fees, incurred by Bell in connection with the fulfillment of its rights and obligations under the agreement and the submission of any filings to, or interaction with, any governmental authority. In connection with its rights under Section 13(h), Bell has requested reimbursement for legal fees in the amount of $43,733 (the “Legal Fees”). The Legal Fees shall be paid to Bell in immediately available funds in three equal monthly installments beginning on June 1, 2009 and payable on the first day of each succeeding month thereafter (or the first business day of such month if the first of the month is not a business day).

5. Sublease. Pursuant to the SkyTel Reorganization, ST Messaging became the subtenant under the Sublease. The parties acknowledge that Bell, as lessor, did not provide its prior written consent to the assignment as required under Section 20 of the Sublease. Notwithstanding anything to the contrary contained in the Sublease, Bell hereby consents to the assignment and waives any notice requirement and compliance with any other provision in the Sublease that the parties did not properly abide by in connection with the SkyTel Reorganization, provided, however, that Messaging Management shall fully guarantee ST Messaging’s obligations under the Sublease (as set forth in Section 6). In connection with the SkyTel Reorganization, ST Messaging has indicated to Bell its intent to find a new tenant to take over the space it currently subleases effective as of January 1, 2011. Bell hereby agrees to use its commercially reasonable efforts to jointly market the space to possible new tenants, it being understood that notwithstanding such efforts, ST Messaging shall remain liable for all obligations under the Sublease until the earlier of (i) the end of the initial term of the Sublease or (ii) a new tenant entering into a sublease for the space at the same lease rate specified in the Sublease, provided, however, if Bell is able to lease the space otherwise to be occupied by ST Messaging pursuant to the Sublease at a lease rate that is lower than the rate specified in the Sublease, then ST Messaging shall only be liable for the amount of such shortfall to the original lease rate.

6. Sublease Guarantee. In consideration of the assignment of the Sublease and Bell entering into this Agreement, Messaging Management hereby, jointly and severally with ST Messaging, absolutely and unconditionally guarantees to Bell ST Messaging’s obligations under the Sublease. The guarantee under this Section 6 shall be fully and completely discharged upon the satisfaction or mutually agreed termination of ST Messaging’s obligations under Section 5 of this Agreement.

7. Workers Compensation Claim. Bell acknowledges and confirms that it remains liable to satisfy the workers’ compensation claims of former employees of the SkyTel business transferred to Velocita, to the extent such claims arose prior to the transfer of assets to Velocita pursuant to the Asset Purchase Agreement, including the May 2008 claim by former employee Anthony Mariscal in the amount of $5,269.78.

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8. Releases.

(a) Bell and Bell Techlogix, for themselves and all persons or entities claiming by or through either of them, including, without limitation, any of their respective current or former managers, members, officers, directors, stockholders, successors, assigns, or any other person, firm or entity directly or indirectly controlling, controlled by or affiliated with all or any of them (collectively, the “Bell Group”), hereby releases and forever discharges Velocita, United Wireless, NA Wireless, SkyTel Spectrum, United Spectrum, ST Network, ST Messaging and Messaging Management and each of their respective current or former managers, members, officers, directors, stockholders, successors, assigns, or any other person, firm or entity directly or indirectly controlling, controlled by or affiliated with all or any of them (collectively, the “SkyTel Group”), from any and all losses, claims, damages, demands, lawsuits, actions or causes of action, and/or liabilities (collectively, the “Losses”) that any or all of the Bell Group now have, has had, or may hereafter have against any member of the SkyTel Group, of whatever kind or description whatsoever, whether arising out of tort, contract, common law, statute or otherwise, in law or in equity, based on, arising out of, or in connection with anything whatsoever done, omitted or suffered to be done contemporaneously with or prior to this Agreement solely with respect to the matters set forth in this Agreement. Notwithstanding the above, this release shall not (i) be deemed to be a release of any of the Bell Group’s rights or obligations under this Agreement, (ii) release the SkyTel Group’s obligations under the Asset Purchase Agreement to properly assume the liabilities specified therein, or (iii) apply in the case of fraud with respect to this Agreement or otherwise.

(b) Each member of the SkyTel Group, hereby releases and forever discharges each member of the Bell Group, from any and all Losses that any or all of the SkyTel Group now have, has had, or may hereafter have against any member of the Bell Group, of whatever kind or description whatsoever, whether arising out of tort, contract, common law, statute or otherwise, in law or in equity, based on, arising out of, or in connection with anything whatsoever done, omitted or suffered to be done contemporaneously with or prior to this Agreement solely with respect to the matters set forth in this Agreement. Notwithstanding the above, this release shall not (i) be deemed to be a release of any of the SkyTel Group’s rights or obligations under this Agreement, (ii) release the Bell Group’s obligations under the Asset Purchase Agreement to satisfy the retained liabilities specified therein, or (iii) apply in the case of fraud with respect to this Agreement or otherwise.

9. Representations. Each of the undersigned parties hereto hereby represents and warrants that it is authorized to execute and deliver this Agreement and upon its execution this Agreement will be a legally binding obligation of such party. Furthermore, each of Velocita, United Wireless, SkyTel Spectrum and NA Wireless represents and warrants that all of Andrew Fitton’s direct and indirect interests in the former SkyTel business and Messaging Management are currently held in the entities that are a party to this Agreement.

10. Covenant Not to Sue. Each of the parties hereby irrevocably covenants to refrain from, directly or indirectly, asserting, commencing, instituting or causing to be commenced, any proceeding of any kind against any other party based upon any matter purported to be released by Section 7 of this Agreement.

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11. Defaults. Each of the sections of the settlement are an integral part of the overall Agreement. If a member of the SkyTel Group defaults on its obligations under this Agreement then the Bell Group shall not be compelled to perform on its obligations under this Agreement. Likewise, if a member of the Bell Group defaults on its obligations under this Agreement then the SkyTel Group shall not be compelled to perform on its obligations under this Agreement.

12. Guarantee. Each of United Wireless, United Spectrum, ST Network, NA Wireless, SkyTel Spectrum and Velocita (the “Guarantors”), jointly and severally, hereby absolutely and unconditionally guarantees to Bell the payment of any and all obligations owed by any member of the SkyTel Group under Sections 1 through 4 of this Agreement; provided, that the guarantee by United Spectrum shall be limited solely to the amount of proceeds received by it from SkyTel Spectrum. This guarantee is a guarantee of payment and not of collection. Such guarantee does not include a guarantee by the Guarantors of the performance by any member of the SkyTel Group of any of the obligations of any member of the SkyTel Group. Each of the Guarantors covenants that, other than to another Guarantor, it shall not make any distribution or other payment except for commercially reasonable services provided in the ordinary course to its members or stockholders in their capacity as such (other than with respect to tax distributions, solely to the extent that such members or stockholders of the Guarantors incur a currently payable tax obligation with respect to their interests in the Guarantors) until the payment obligations under Sections 1 through 4 of this Agreement have been satisfied in full. Upon payment in full of the obligations under Section 1 through 4 of this Agreement, the guarantee and restrictions under this Section 11 shall be fully and completely discharged and of no further force and effect.

13. No Admission of Liability. The entering into of this Agreement shall not be deemed to be an admission of liability on the part of any party hereto with respect to the breach of any obligation under any other agreement between the parties.

14. Notices. Any notice shall be deemed given when delivered to, or on the day after being sent by a nationally recognized overnight courier service addressed to, the person at the address listed below or to such other person and/or address as may be designated from time to time in writing

To Bell Industries, Inc. or Bell Techlogix, Inc.:

c/o Bell Industries, Inc.
8888 Keystone Crossing, Suite 1700
Indianapolis, IN 46077
Attn: Kevin J. Thimjon, President and CFO
Fax: (317) 715-6816

With a copy to:

Newcastle Capital Management, L.P.
200 Crescent Court, Suite 1400
Dallas, TX 75201
Attn: General Counsel
Fax: (214) 661-7475

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To ST Messaging Services LLC, ST Network Services LLC or Messaging Management Services, LLC:

c/o American Messaging Services, LLC
1720 Lakepointe Drive, Suite 100
Lewisville, TX 75057
Attn: J. Roy Pottle, Chairman & Chief Executive Officer
Fax: (972) 353-1912

With a copy to:

Ulmer & Berne LLP
1660 West 2nd Street, Suite 1100
Cleveland, OH 44113
Attn: Marie Kuban, Esq.
Fax: (216) 583-7435

To Velocita Wireless LLC, United Wireless Holdings Inc., SkyTel Spectrum LLC, United Spectrum Management Services LLC or North American Wireless Holdings LLC:

70 Wood Avenue South
Iselin, New Jersey 08830
Attn: Legal Department
Fax: (732) 906-0250 (fax)

With a copy to:

Morrison & Foerster
1650 Tysons Blvd.
McLean, Virginia 22102
Attn: Greg Giammittorio, Esq.
Fax: (732) 760-7777

15. Further Assurances. The parties shall take such acts, and shall execute such documents and instruments, as may be reasonably necessary to carry out the purposes and intent of this Agreement.

16. Severability. If any provision hereof is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

17. Survival. The provisions of this Agreement shall survive the Effective Date.

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18. Construction. The drafting and negotiation of this Agreement have been participated in by each of the parties and for all purposes this Agreement shall be deemed to have been drafted jointly by each of the parties hereto.

19. Miscellaneous. This Agreement (i) shall be governed by and construed in accordance with the laws of the State of New York; (ii) shall be binding on and inure to the benefit of the parties and their respective successors and assigns; (iii) may be executed in any number of counterparts, including transmission by facsimile, each of which shall be regarded as an original and all of which shall constitute one and the same instrument; (iv) may not be effectively amended, changed, modified, altered or terminated without the prior written consent of the parties hereto; and (v) constitutes the entire agreement between the parties with regard to the matters set forth herein and supersedes all prior understandings, discussions, agreements and writings, and expresses a full and complete settlement of all disputes, claims and liabilities claims between and among the parties with respect to the matters addressed herein. The Recitals are an integral part hereof and are hereby incorporated by reference.

[Remainder of Page Left Intentionally Blank]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first set forth above.

BELL INDUSTRIES, INC.		VELOCITA WIRELESS LLC
By:	/s/ Kevin J. Thimjon Name: Kevin J. Thimjon	By:	/s/ Andrew Fitton Name: Andrew Fitton
	Title: President & CFO		Title: CEO
BELL TECHLOGIX, INC.		UNITED WIRELESS HOLDINGS INC.
By:	/s/ Kevin J. Thimjon	By:	/s/ Andrew Fitton
	Name: Kevin J. Thimjon		Name: Andrew Fitton
	Title: President & CFO		Title: CEO
		NORTH AMERICAN WIRELESS HOLDINGS LLC
		By:	/s/ Andrew Fitton
			Name: Andrew Fitton
			Title: CEO
		SKYTEL SPECTRUM LLC
		By:	/s/ Andrew Fitton
			Name: Andrew Fitton
			Title: CEO
		ST NETWORK SERVICES LLC
		By:	/s/ J. Roy Pottle
			Name: J. Roy Pottle
			Title: Authorized Agent
		UNITED SPECTRUM MANAGEMENT SERVICES LLC
		By:	/s/ Andrew Fitton
			Name: Andrew Fitton
			Title: CEO
		ST MESSAGING SERVICES LLC
		By:	/s/ J. Roy Pottle
			Name: J. Roy Pottle
			Title: Authorized Agent

MESSAGING MANAGEMENT SERVICES LLC
By:	/s/ J. Roy Pottle
	Name:	J. Roy Pottle
	Title:	Manager

[Signature Page (cont) for Settlement Agreement]

Exhibit A

Form of New Deferred Note

See attached.

PROMISSORY NOTE

$1,100,000.00 May 12, 2009

FOR VALUE RECEIVED, the undersigned, NORTH AMERICAN WIRELESS LLC, a Delaware limited liability company (“Borrower”), HEREBY PROMISES TO PAY to the order of BELL INDUSTRIES, INC., a California corporation (“Holder”), at Holder’s offices at 8888 Keystone Crossing, Indianapolis, Indiana, or at such other place as may be designated by Holder, the principal amount of One Million One Hundred Thousand Dollars ($1,100,000.00) (the “Principal Amount”) with interest thereon until the Principal Amount is paid in full, whether by acceleration or otherwise, at the lowest applicable federal rate under the Internal Revenue Code of 1986, as amended, so as to avoid imputation of interest (the “Applicable Rate”) in accordance with the terms hereof. This Promissory Note (this “Note”) is being delivered in connection with that certain Settlement Agreement and Mutual Release between Holder, Borrower and certain other parties dated as of May 12, 2009, as the same may be amended, restated or modified from time to time (the “Settlement Agreement”). Capitalized terms not defined herein shall have the meanings ascribed to them in the Settlement Agreement.

1. The Principal Amount shall be paid in eleven (11) monthly installments of $100,000 beginning on June 1, 2009 and payable on the first day of each succeeding month thereafter. Accrued unpaid interest shall be paid with each such principal payment. All unpaid principal and unpaid accrued interest shall be due in full and paid on or before April 1, 2010 (the “Maturity Date”), unless otherwise accelerated in accordance with the terms hereof. All payments under this Note shall be in immediately available United States funds, without setoff or counterclaim. If any payment under this Note shall be payable on a day other than a business day such payment shall be extended to the next succeeding business day. This Note may be prepaid in full or in part at any time without penalty or premium.

2. Upon and after the occurrence of an Event of Default (as such term is defined below) (and only while such Event of Default continues) Holder may, at its election, and upon written notice to the Borrower, do any one or more of the following: (1) declare all obligations under this Note immediately due and payable; and (2) exercise any one or more of the rights and remedies granted to Holder by the Settlement Agreement or applicable law. Upon an Event of Default, the Principal Amount shall be increased by $150,000 (the “Additional Amount”), which Additional Amount shall be immediately due and payable by Borrower upon Holder’s written notice to Borrower that such amount is due.

3. The payment obligations of Borrower under this Note are guaranteed by the Guarantors, as more fully set forth in the Settlement Agreement.

4. Borrower waives presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices and agrees that no extension or indulgence of Borrower or release, substitution or nonenforcement of any security, or release or substitution of Borrower, whether with or without notice, shall affect the obligations of Borrower.

5. Representations and Warranties. Borrower represents and warrants to Holder that:

(a) Borrower is duly organized, validly existing and in good standing under the law of the State of Delaware and has all requisite power and authority to execute, deliver and perform its obligations under this Note.

(b) The execution, delivery and performance by Borrower of this Note has been duly authorized by all necessary action of Borrower, and this Note constitutes the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(c) No consent, approval, permit, authorization of, or filing or declaration with, any governmental authority or agency, or approval or consent of any other person, is required for the due execution, delivery or performance by Borrower of this Note, except for such consents, approvals, permits, authorizations, filings or declarations, the failure of which to obtain would not have materially adversely affect Borrower’s ability to execute, deliver or perform this Note.

6. Event of Default. Any of the following events which shall occur and be continuing shall constitute an “Event of Default”:

(a) Payments under this Note are not made within five (5) business days of the date such payments are due.

(b) Borrower shall have breached any representation, warranty, covenant or undertaking contained in this Note and such breach is not cured within ten (10) business days after Holder’s written notice to Borrower of the occurrence of such breach.

(c) Borrower shall have breached any representation, warranty, covenant or undertaking contained in (i) the Settlement Agreement, (ii) that certain Payment Agreement between Holder, Borrower, Messaging Management Services, LLC, ST Messaging Services LLC and SkyTel Spectrum LLC dated as of May 12, 2009, or (iii) that certain Payment Agreement between Holder and American Messaging Services, LLC, dated as of May 12, 2009, and such breach is not cured within ten (10) business days after Holder’s written notice to Borrower of the occurrence of such breach.

(d) Borrower shall have commenced any bankruptcy, reorganization, arrangement, adjustment or debt, relief of debtors, dissolution, insolvency, receivership or liquidation or similar proceeding of any jurisdiction relating to Borrower.

7. Except as otherwise provided herein, Borrower agrees to reimburse the holder or owner of this Note for any and all reasonable costs and expenses (including, without limitation, reasonable attorney fees) incurred in collecting on this Note.

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8. Any notices or other communications required or permitted to be given or made pursuant to this Note shall be made in accordance with the notice provisions set forth in the Settlement Agreement.

9. This Note may not be waived, changed, modified or discharged, except by an agreement in writing signed by the party against whom the enforcement of waiver, change, modification or discharge is sought.

10. Each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. Whenever in this Note reference is made to Holder or Borrower, such reference shall be deemed to include, as applicable, a reference to their respective successors and assigns; provided, however, that no assignment of this Note or of any rights or obligations hereunder may be made by Borrower, directly or indirectly (by operation of law or otherwise), without the prior written consent of the Holder and any attempted assignment without the required consents shall be void. No assignment of any obligations hereunder shall relieve the Borrower of any such obligations. The Holder may assign this Note and any of the rights and obligations hereunder. The provisions of this Note shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Holder and its successors and assigns. Borrower’s successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrower.

11. Neither a failure nor a delay on the part of Holder in exercising any right, power or privilege under this Note shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of Holder herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which Holder may have under this Note at law, in equity, by statute or otherwise.

12. This Note shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the internal laws and decisions of the State of New York without regard to conflict of law principles. EACH OF HOLDER AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK CITY, NEW YORK WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND HEREBY WAIVES ANY OBJECTION TO SUCH FORUM BASED ON FORUM NON-CONVENIENS. IN ADDITION, TO THE EXTENT PERMITTED BY APPLICABLE LAW, HOLDER AND BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS NOTE.

13. Upon payment in full of the entire Principal Amount of this Note, together with all interest which is accrued and unpaid with respect thereto, the obligations under this Note shall be deemed as having been fully and completely satisfied, the obligations of the Guarantors shall automatically terminate and be released and this Note shall be cancelled.

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14. Borrower agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as Holder may at any time reasonably request in connection with the administration and enforcement of this Note or any part thereof or in order to better assure and confirm unto Holder its rights and remedies hereunder.

“BORROWER” NORTH AMERICAN WIRELESS LLC, a Delaware limited liability company
By:	/s/ Andrew Fitton
	Name:	Andrew Fitton
	Title:	CEO

[Signature Page to Promissory Note]

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EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Clinton J. Coleman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bell Industries, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2009	/s/ Clinton J. Coleman
	Clinton J. Coleman
	Interim Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Kevin J. Thimjon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bell Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2009	/s/ Kevin J. Thimjon
	Kevin J. Thimjon
	President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bell Industries, Inc. (the “Company”), on Form 10-Q for the period ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clinton J. Coleman, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

• The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 15, 2009	/s/ Clinton J. Coleman
	Clinton J. Coleman
	Interim Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bell Industries, Inc. (the “Company”), on Form 10-Q for the period ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin J. Thimjon, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

• The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 15, 2009	/s/ Kevin J. Thimjon
	Kevin J. Thimjon
	President and Chief Financial Officer